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ECB to stop lending to local banks

Lenders will have to use funds from local mechanism for now

The European Central Bank announced on Wednesday that it would temporarily stop lending to certain Greek banks until they have completed their recapitalization, a process that has been delayed -- generating worries in the local credit system -- but should be concluded next week, according to the country?s credit stability fund.

The ECB suggested that the local banks that have not yet boosted their capital sufficiently, as is the case with the majority, will have to temporarily resort to the Bank of Greece and its emergency liquidity assistance (ELA) to ensure an adequate cash flow.

?Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations,? the European Central Bank stated.

Panayiotis Thomopoulos, the head of the Hellenic Financial Stability Facility (HFSF), stated on Wednesday that the 18 billion euros destined to bolster the capital base of the four main commercial lenders will be transferred via the deposit of bonds to National, Alpha, Eurobank EFG and Piraeus by Tuesday or Wednesday next week.

The credit market in Greece is fuming at the delay in the recapitalization process. Although the relevant government decision was approved before Easter (April 15), and the European Financial Stability Facility (EFSF) has forwarded 23 billion euros to the HFSF to this end, these funds have not yet reached the local banks.

Had the process been already completed, banks would not only have been able to tap into the liquidity of the Eurosystem, but the 18 billion euros in bonds would have stabilized the local credit market and reduced anxiety. Bank officials suggest the delay is simply unjustifiable.

Worse, deposits are continuing to shrink as Greek citizens? fears about the course of the economy grow, with rumors circulating in foreign media that local banks have set a 50-euro ceiling on cash withdrawals, which is completely unfounded.

Bank sources said the situation remains under control, but add that caution should be exercised to avoid any statements that would generate panic.